EPA Rules Pose Opportunity to Transform Electricity System

Sometimes, the cost and risks of doing nothing far outweigh the costs of making a profound leap forward.

The EPA’s new mercury rules, issued Dec. 21 and facing challenges from opponents, present a real opportunity to transform the electricity system toward high levels of energy efficiency and renewable generation, keys to a safer, cleaner U.S. energy future. As the battle over the regulations plays out, it’s important to keep in mind that they are hardly a surprise, and some utilities are well prepared for them.

Required under the Clean Air Act Amendments approved by Congress in 1990, the rules represent the most significant public health and environmental advances in years. While the regulations weigh in at a hefty 1,117 pages, they can be boiled down to one key phrase: "maximum achievable control technology" to reduce airborne toxins. According to the EPA, these controls are expected to cut mercury, acid gas and other pollutants, prevent some 17,000 premature deaths per year and provide an estimated $59 billion to $140 billion in health benefits in 2016.

The debate is turning into a classic political he-said, she-said around three major points: cost, jobs and reliability. Industry groups see the EPA’s estimate of $11 billion in costs to utilities to comply by 2016 as unduly burdensome. They also say retirement of old coal plants that operators deem too expensive to bring into compliance could harm grid reliability. Opponents—who will seek court rulings or congressional action to block the rules—also claim the regulations are job killers, while President Obama predicts up to 46,000 short-term construction jobs and 8,000 long-term utility jobs could be generated by the new pollution controls.

The utility industry, which bears the brunt of cost impacts, is internally divided. According to the Washington Post: “some companies, such as New Jersey-based Public Service Enterprise Group and Illinois-based Exelon, say they could meet the new standards easily and have already spent hundreds of millions of dollars to do so. PSEG has also switched from coal to natural gas. But others, most notably Southern Co. and American Electric Power, which has aging coal plants scattered throughout the Midwest, protested that they would have to shut down facilities if forced to install new pollution controls by 2014. These costs will likely get passed on to households. That, in turn, they predicted, could jeopardize the reliability of the nation’s electricity supply.”

The middle ground is summarized by John Moura, manager of reliability assessment at the North American Electric Reliability Corp. NERC is charged with weighing how plant retirement will impact reliability. "In the industry we retire units. That is part of our business. We can't say there isn't going be an issue. We know there will be some challenges. But we don't think the lights are going to turn off because of this issue."

The new regulations will affect utilities differently—segmenting those with more forward-thinking strategy from the rest. Efficiency, in particular, can quickly help utilities ensure they have peak capacity. The timeline for coal plant retirements is fast; the EPA has estimated that 14.7 gigawatts, enough power for more than 11 million households, will be retired by 2015. Efficiency is a utility’s best resource in the short term. Spending on efficiency programs already has ramped up, increasing by 20 percent in 2011. The mercury regulations can give efficiency spending another nudge and also encourage utilities to embrace more innovative business practices and get more creative in attracting customers.

Renewables, too, can help utilities meet demand without mercury emissions. While reliability due to renewables’ variability is a concern, analysis supporting environmental regulations in California has shown that large, centralized power plants can be decommissioned and renewables increased without adversely affecting system reliability. RMI research modeling supports this, and finds that efficiency and renewables can be combined and take advantage of all the newest intelligent controls, smart grids, and new technologies—while affordably keeping the lights on. Capital would be better spent on distributed renewable generation than on expensive and risky emissions retrofits.

Reinventing Fire, based on 30 years of Rocky Mountain Institute research, shows a roadmap to a U.S. energy future that eliminates coal and nuclear power from the electric system and cuts natural gas use by one-third by 2050. It recognizes that strong forces—an aging infrastructure, technological advances and renewable cost reductions—are aligning to drive transformative change in the electricity sector, creating a “perfect storm” of opportunity to reinvent the system. RMI’s vision is an electricity system that is efficient, renewable and largely distributed rather than centralized in massive power plants.